Unlocking Hidden Gold: Top Housing Markets Poised for Growth

In a landscape where traditional hot markets like San Francisco and Austin face cooling demand, investors are turning to overlooked regions where policy reforms, undervalued housing, and surging rental demand create a rare trifecta for profit. Leveraging Zillow’s proprietary data—ZHVI, ZORI, ZORDI, and Market Heat Index—we identify Dallas, Honolulu, and Midwest cities like Kansas City and Omaha as prime targets for multifamily and small-home investments. Here’s why now is the time to act.

Dallas: The Undervalued Giant with Rental Firepower

Dallas’s ZHVI (Zillow Home Value Index) has grown steadily at 3.2% annually since 2020, yet it remains 20% below its pre-recession peak relative to income growth. Meanwhile, its ZORDI (Rental Demand Index) hit a five-year high in Q1 2025, with multifamily listings under 1,500 sq. ft. outpacing supply by 35%.

The catalyst? A 12% rise in median wages since 2023, driven by tech and logistics hubs, coupled with zoning reforms that allow midsize apartment complexes in previously restricted areas. With the Market Heat Index at 82 (indicating a seller’s market), Dallas offers a rare blend of affordability and demand. For investors, small multifamily units (4–12 units) in transit corridors like Uptown or Las Colinas are poised to deliver 8–10% annualized returns through rent growth and appreciation.

Honolulu: Luxury Rentals Meet Policy-Driven Supply

Honolulu’s housing market is a paradox: its ZHVI ranks among the nation’s highest, yet ZORI (Observed Rent Index) has surged 18% since 2022, outpacing home price gains. Why? Strict zoning once limited housing growth, but recent reforms now allow condo conversions in urban zones and accessory dwelling units (ADUs), boosting supply without oversaturating luxury markets.

The data tells the story:
- ZORDI for Honolulu’s mid-tier rentals (1,000–1,500 sq. ft.) is up 27% YoY, with occupancy rates holding at 94%.
- The Market Heat Index dropped to 68 in Q1 2025, signaling a buyer’s edge in entry-level condos.

Investors should target rental units priced at 60–80% of area median income (AMI). These properties benefit from Hawaii’s 10% tourism-driven demand and state tax incentives for ADU construction, offering 5–7% cash-on-cash returns with appreciation potential.

The Midwest: Zoning Reforms Ignite a Quiet Revolution

Cities like Minneapolis, St. Paul, and Omaha are rewriting housing dynamics through density-friendly zoning laws that eliminate single-family-only zones and fast-track mixed-use developments. The result? A 15–20% jump in housing permits since 2023, but rental demand remains unmet due to chronic undersupply in affordable units.

Key opportunities:
1. Kansas City: Multifamily occupancy stays at 95%, with rents rising 4% annually. The city’s revised energy codes, while costly, have pushed development to suburbs like Overland Park, creating suburban infill opportunities.
2. Omaha: Zoning reforms now allow triplexes and quadplexes, targeting a $60 million federal grant pipeline for affordable housing. Investors can acquire starter homes or small apartment buildings at 10–15% below replacement cost, securing 6–8% returns.

Why Act Now? Three Unstoppable Trends

1. Mortgage Rates at 5.5%—the Sweet Spot: Rates are down from 2022’s 7% peak, making financing cheaper while still pricing out speculators.
2. Wage Growth Outpaces Inflation: In Dallas and the Midwest, hourly wages rose 6% in 2024, boosting renters’ ability to pay.
3. Supply Constraints Persist: Even with zoning reforms, permits lag demand by 20–30% in these markets. The Market Heat Index in the Midwest remains above 70, signaling limited inventory for years.

The Investment Playbook

• Buy Smaller, Buy Local: Focus on 4–12 unit multifamily buildings or ADUs in transit-accessible neighborhoods.
• Leverage Zillow’s Data: Track ZHVI growth in “missing middle” housing tiers and ZORDI spikes for units under 1,500 sq. ft.
• Lock in Financing Now: Rates are poised to rise again; secure loans before 2026.

Conclusion: The Next Boom Isn’t Where You Think

The housing markets of the future won’t be in the usual suspects—they’ll be in overlooked regions where policy shifts, undervalued assets, and pent-up demand converge. Dallas, Honolulu, and the Midwest’s reform cities offer a rare combination of safety (stable demand) and leverage (supply constraints). For investors who act now, the returns will be as clear as the data backing them.

The next cycle is here. Are you positioned to profit?

Data sources: Zillow Economic Research, Federal Reserve Economic Data, local housing authorities.